Carolina is a high-cost university

The U.S. Department of Education has started taking applications from former university students hoping to force taxpayers to pay off their loans. President Joe Biden’s loan-transfer diktat is one of the worst policies of modern times: hugely expensive, patently illegal, and grossly unfair to the millions of borrowers who worked hard and sacrificed much to pay off their debts.

I hope the policy is struck down in court. It richly deserves to be. Today, though, I wish to rebut an argument frequently made in its favor: that it will reduce the cost of higher education in America. No, it will increase the cost. That’s clearly one of its goals.

Although we sometimes use the terms “price” and “cost” interchangeably, they are different things. The price of a good or service is what a consumer pays to acquire it. The cost of a good or service is the total of all resources used or given up to produce it.

In higher education, the price paid by students is typically lower than the full cost of educating them. That’s because third parties help defray the cost, including private donors, federal taxpayers (via grants and subsidized loans), and state taxpayers (in the case of public universities or of private ones in states such as North Carolina that provide the equivalent of vouchers for college).

I’ll illustrate the point by comparing the University of North Carolina at Chapel Hill to five other flagship “public Ivy” institutions: the University of Virginia, the University of Florida, the University of Michigan, the University of California at Berkeley, and the University of Texas. For each of them, I pulled comparable financial data from the Education Department’s Integrated Postsecondary Education Data System (IPEDS).

The prices charged to students by Chapel Hill and other institutions in the UNC system have long been among the lowest in the country. According to IPEDS, tuition, fees, room, board, and other charges for an in-state student at UNC-CH averaged $24,770 in 2020. Among the six peers studied, only Florida charged less, at $21,431. Berkeley was the most expensive, at $41,473.

In North Carolina, then, we certainly do maintain a low-price policy in our public universities. That does not mean, however, that we maintain a low-cost policy.

In fact, among the six public Ivies I examined, UNC-Chapel Hill had the highest expenditures on core functions per full-time-equivalent student: $78,488. Michigan ($74,437) was second. The lowest-spending institutions were Texas ($59,810) and Berkeley ($62,063).

Now, the “core functions” of a large public university go far beyond the direct cost of teaching students. While ancillary businesses such as hospitals aren’t included here, the totals do include research and public-service programs delivered by professors and other staff. Even when I excluded them from the calculation, however, and focused just on expenditures for instruction, student services, and academic support, UNC-CH’s costs were still on the high side — $35,578 per FTE student, less than Michigan’s $37,192 but still significantly higher than the likes of Virginia ($31,284), Texas ($30,775) and Florida ($22,481).

While not considered a public Ivy, Purdue University has under former Indiana Gov. Mitch Daniels become a national leader in controlling higher-education costs. Its 2020 spending on instruction, student services, and academic support was $22,537 per student. Purdue’s in-state price to attend averaged $22,812.

What allows UNC-Chapel Hill to operate a low-price, high-cost model? Donations and grant help bridge the gap, but the primary explanation is the generosity of North Carolina taxpayers. In 2020 they chipped in $18,414 per student, by far the highest state appropriation of the universities I studied.

Now back to Biden’s indefensible policy. Transferring student debt from borrowers to federal taxpayers reduces the price of education previously purchased. To the extent current and prospective students reasonably expect a similar subsidy, that reduces the real price they expect to pay. Universities will respond by expanding their budgets, knowing such increased costs won’t be passed along to students and thus won’t deter enrollment. It’s a vicious circle — unless you work at a university.

John Hood is a John Locke Foundation board member. His latest books, Mountain Folk and Forest Folk, combine epic fantasy with early American history.